Zumiez Inc (ZUMZ) 2016 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Zumiez, Inc. fourth quarter 2016 earnings conference call. At this time all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference.

Before we begin, I'd like to remind everyone of the Company's Safe Harbor language. Today's conference call includes comments concerning Zumiez, Inc. business outlook and contains forward-looking statements. These forward-looking statements and other statements that may be made on this call that are not based on historical facts are subject to risks and uncertainties. Actual results may differ materially. Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available on Zumiez filing with the SEC.

At this time I will turn the call over to Rick Brooks, Chief Executive Officer. Please go ahead, sir.

Thank you. Hello, everyone. And thanks for joining us on the call today. With me is Chris Work, our Chief Financial Officer. I'll begin today's call with a few brief remarks regarding the fourth quarter and provide you with an update on our broader strategy. I'll then hand the call over to Chris who will take you through the numbers. After that, we'll open up the call to your questions.

We had a strong finish to the year, posting fourth quarter diluted EPS of $0.74 per share, a significant increase compared with the year-ago period and well ahead of our guidance range of $0.60 to $0.66. This increase from our guidance was driven primarily by efficiencies realized as we continued to execute our Omni channel and localization efforts combined with a more favorable tax rate.

My thanks go out to the Zumiez, Blue Tomato and Fast Times teams whose work hard work executing our growth strategies helped the Company perform strongly relatively to the industry during the holiday season with our unique assortment and superior customer service that continued to differentiate our concepts from the competition.

While our fourth quarter results are a great indication of our brand strength and the benefits from investments in our Omni-channel platform and people, we recognize that changing consumer shopping behaviors will continue to pressure the retail industry and we are not immune. Therefore we remain focused on managing the things we can control; investing behind initiatives we believe will bring long-term value to both our customers and our shareholders and tightly managing our expenses.

In 2016, we introduced our new customer engagement suite at select locations in the United States. And in 2017 we will roll it out across the US store fleet. We are very excited about this system enhancement, which along with additional investments in our Omni-channel capabilities, gives us new ways to engage with our customers. Through this level of interaction, in conjunction with face-to-face dialogue in stores we'll be able to keep our finger on the pulse of local trends allowing us to provide hyper localized and purely authentic product assortments, and a superior personalized brand experience for our customers.

This customer and lifestyle-centric approach has been the lynchpin of our success to date and is what we believe will propel us forward over the long-term. Our advanced platforms will enhance our ability to stay true to these values as we continue to grow.

Our physical store expansion remains an important piece of our overall customer experience. Though we remain committed to limiting our physical store expansion to the optimal number of stores required to best serve our customers in any geographic area.

To that end we continue to see North American store expansion moderating in 2017 compared to prior years as we approach our targeted store count. In Europe it's a different story. This market remains highly fragmented and our presence on the continent is relatively small, each of which provides opportunity for expansion.

Although our plans are somewhat tempered by the current macroeconomic headwinds in the region, we remain optimistic about our ability to strategically advance our brand in select countries to support our superior customer experience.

Related to our recently acquired Fast Times business in Australia, our focus in the immediate future is on combining best practices from each of our teams and integrating and optimizing our blended business model. We're excited about the opportunities this acquisition presents for our business to capture demand in Australia.

As we reflect upon the past five years we have executed on our long-term strategy and made great progress in many key areas in service of our customer. We have increased our store count domestically by 39% and expanded globally, now operating in 6 countries, increasing our capabilities to reach our customers as well as providing growth for our brand partners.

We have strengthened and refined our merchandising capabilities, creating a hyper localized experience. We have transitioned to localized fulfillment in our North American business, putting ownership of the customer experience back to our local sales teams, significantly reducing our order to delivery time, and opening up our full inventory selection to all customers.

We added our Stash and loyalty program bringing opportunities for our customers to have amazing experiences and further identify with the Zumiez brand. And we have added several buying option for our customers including buy online, pick up in store, reserve online and pay in store, among others that allow customers to see their local store's inventories and buy whenever and however they choose.

We're excited about the progress that we've made. However, as we enter 2017 we see heightened macro level economic unpredictability and continue to be impacted by other headwinds that have plagued the retail sector for most of the last few years. While we are cautious, we remain confident in our position, in our ability to maintain cost consciousness and prudence in our strategy, while focusing on the right investments that will benefit both customers and shareholders over the long-term.

With that, I will hand the call to Chris who will review the financials. Chris?

Thanks, Rick. Good afternoon, everyone. I'm going to start with a review of our fourth quarter and full year 2016 results. I'll then provide a brief update on February before discussing our first quarter guidance and some high-level perspective on how we are thinking about the full year.

Fourth quarter net sales increased $21.2 million, or 8.7%, to $263.6 million from $242.4 million in the fourth quarter of 2015. Contributing to this increase was the addition of 33 new stores since the end of our last fiscal year, including the five Fast Times stores in Australia, and strong positive comparable sales growth of 5.1%. During the 2016 fourth quarter we saw increases in transaction volumes partially offset by a decrease in dollars per transaction resulting from lower units per transaction and a decline in average unit retail.

Mens, juniors and accessories categories comped positive while hard goods and footwear comped down for the quarter. From a regional perspective North America net sales increased $16.1 million, or 7.6% to $228.6 million. International net sales which consists of Europe and Australia increased $5.1 million, or 17.1% to $35 million.

Fourth quarter gross profit was $94 million, up $9.8 million or 11.6% compared to the same quarter a year ago. Gross margin was 35.7% in the quarter, up 90 basis points compared to 34.8% a year ago. The increase from the prior year was driven largely by a reduction of fixed costs resulting from the closure of our Kansas fulfillment center at the end of fiscal 2015, leverage of our occupancy costs on higher sales, and an increase in product margins.

SG&A expense was $66.1 million in the 2016 fourth quarter compared to $62.8 million in the fourth quarter of 2015. SG&A as a percent of net sales was 25.1%, down 80 basis points compared to the same quarter a year ago. This improvement was driven by better leverage of our store operating expense on higher sales. We generated an operating profit of $27.9 million up from $21.5 million in the fourth quarter of 2015. Operating margin increased 170 basis points compared with the fourth quarter of 2015.

Net income for the fourth quarter of 2016 was up 38.3%, to $18.2 million compared with net income of $13.1 million in the fourth quarter of 2015. This equates to a 48% increase in diluted EPS which came in at $0.74 per diluted share in the fourth quarter of 2016 compared to $0.50 per diluted share in the fourth quarter a year ago.

Our tax rate for the fourth quarter of 2016 was 35.3%, compared to 37.3% a year ago. A decrease in the effective tax rate for fiscal 2016 compared to 2015 was primarily due to the tax impact of our foreign operations.

Turning to the full year results, net sales for fiscal 2016 were $836.3 million, an increase of $32.1 million, or 4% from $804.2 million for fiscal 2015.

Full year comps were relatively flat, down just 0.2%. By region, North America sales were $753.8 million, up 3.5% and international sales were $82.5 million, an increase of 8.5% year-over-year. 2016 gross margin was 32.9%, compared to 33.4% in 2015.

Gross margin declined 50 basis points from the prior year, primarily as a result of the deleveraging of occupancy costs worth 40 basis points. Annual SG&A expense was $235.3 million, or 28.1% of net sales, compared to $222.5 million, or 27.7% of net sales in 2015. The increase in SG&A was driven primarily by the deleverage of wages in store operating costs and corporate costs, offset by a reduction in impairment charges from the prior year.

Operating margin for fiscal 2016 was 4.8% compared to 5.7% in 2015.

Full year net income was $25.9 million, or $1.04 per diluted share compared to 2015 net income of $28.8 million, or $1.04 per diluted share.

Turning to the balance sheet, cash and current marketable securities totalled $78.8 million as of January 28, 2017, up from $75.6 million as of January 30, 2016. This increase was driven primarily by $48.5 million in cash flow from operations, partially offset by $21.6 million used to repurchase our common stock. $20.4 million of capital expenditures primarily related to new store growth and remodels, and to a lesser extent, $5.4 million related to the acquisition of Fast Times in Australia.

During 2016 we added 33 store locations including 22 in North America, 6 in Europe, and 5 stores through the acquisition of Fast Times in Australia. As we have discussed we are continually evaluating our fiscal store presence to ensure that we have the right number of stores in the right locations within each trade area.

As a result, in 2016 we closed 6 stores, bringing our net store openings to 27 for the year.

We ended the year with 685 locations including 651 in North America, 29 in Europe, and 5 Fast Times stores in Australia. We ended fiscal 2016 with $106.9 million in inventory, up from $98.3 million at the end of fiscal 2015 driven primarily by our recent sales trends, increased global store count, and to a lesser extent, timing related to our spring merchandise offering.

We continue to feel confident in the general quality of our inventory. Our aged inventory defined as inventory older than four months, is generally in line with the prior year as a percentage of sales.

Now, to our February sales results. Total net sales for the 4-week period ended February 25, 2017 declined 0.8% to $51.5 million, compared to $51.9 million for the 4-week period ended February 27, 2016. Our comparable sales decreased 3.1% during the 4-week period ended February 25, 2017 compared to a comparable sales decrease of 8.6% for the 4-week period ended February 27, 2016.

The comparable sales decrease was driven by a decline in dollars per transaction, partially offset by an increase in transactions. Dollars per transaction in the period were down due to a decrease in units per transaction and a decrease in average unit retail. During the four weeks ended February 25, 2017 footwear, accessories and hard goods posted negative comps while mens and juniors posted positive comps.

Looking at guidance for 2017. Once again I'll start off by reminding everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margin and earnings growth given the variety of internal and external factors that impact our performance. With that in mind, we currently expect comparable sales between 0% and positive 2% in Q1 2017, with total sales in the range of $178 million to $182 million.

Please keep in mind when reviewing our monthly sales release for the quarter that as expected, February comps were negatively impacted by the delay in IRS income tax refunds which should benefit March. However, the timing of Easter, which is later this year, will be a detriment to March but benefit to April.

Consolidated operating margins are expected to be between negative 4% and negative 5% with a loss per share between $0.17 and $0.21 compared to an $0.08 loss per share in the prior year first quarter. Year-over-year our first quarter EPS is negatively impacted by investments made throughout 2016 and into 2017 as well as increased incentive compensation levels planned in 2017 that were not achieved in 2016.

Before I wrap up, I would like to give you a few thoughts on how we are thinking about 2017. While our recent comparable sales trends have been more favorable, the retail environment in general remains uncertain.

As we look to 2017 and beyond, we continue to believe that the investments we have made in our infrastructure, particularly our Omni-channel presence, as well as those investments we continue to make in the Zumiez team will drive long-term top and bottom line growth.

With this in mind our expectations are that comparable sales will be positive for the year, and we will experience earnings growth based on our current planning.

There will be an extra week in fiscal 2017 resulting in a 14-week fourth quarter and a 53-week fiscal year. The extra week will benefit sales and earnings growth in fiscal 2017 and will be a detriment to sales and earnings growth rates in fiscal 2018. As a reminder, we saw product margin expansion in each quarter of 2016, with the exception of the first quarter. In 2017 we expect product margins for the year to continue to improve. However we anticipate these increases will be modest.

From a cost perspective, we are currently planning SG&A to grow at a greater rate than in 2016 as we continue to absorb minimum wage increases across the country and invest in important initiatives for our long-term success, such as continued investments in our people, the roll-out of our new customer engagement suite, and other strategic initiatives that we believe will draw long-term value for our shareholders.

We are planning to open approximately 18 new stores including four in Europe and two in Australia, with roughly three-fourths of the openings occurring ahead of the back to school season.

We expect capital expenditures for full 2017 fiscal year to be between $24 million and $26 million compared to $20.4 million in 2016. The majority of the capital spend will be dedicated to new store openings and planned remodels.

While our store count growth rate is decreasing in 2017, the related decrease in capital was offset by the increase in remodels for the year. We expect that depreciation and amortization will be approximately $28 million, in line with the prior year.

And we are planning our business assuming an annual effective tax rate of approximately 37.5%. And lastly, we are currently projecting our diluted outstanding share count for the full year to be approximately 25 million shares.

With that, Operator, we would like to open the call up for questions.

(Operator Instructions). Our first question comes from the line of Jeff Van Sinderen, with B. Riley.

Good afternoon. One of the things I know that you guys have talked about is there have been several brands that have been really strong and I'm just wondering if you expect those to continue as you're thinking about the spring, and then later in the year, to kind of lead the charge in terms of merchandise that's resonating? Or, if you're seeing any shift or anticipating any shift to different brands? Maybe some that you're testing, anything that might change the penetration of brands in your business. Well, I know they're always changing but I'm just wondering if there's any color there that you could give?

All right, Jeff, thanks for the question. I'll start and then I'll ask Chris to maybe add on to some of the thoughts. Again, I appreciate the question. As you know, this is one of the areas in terms of thinking about how unique we make our assortments, we focus on greatly, and have for a really long period of time in terms of how important this has been to us for a few decades, in terms of the uniqueness of our brands and our partnership that we have with young brands coming up.

So the headline for me, and I want to provide a little bit of context for you, Jeff, but the headline is I think we feel good about the momentum with our current brands. And remember, these are brands we would have launched somewhere in the 3 to 4 year ago range that have now gained traction for us. So I think we feel good about our current trajectory.

I'll also let you know that, as usual, we launched right around 100 plus new brands per year, actually slightly more than that I think, on average. And we achieved that goal in 2016, and we expect to achieve again somewhere near that average in 2017. And again these would be brands that over the next couple of years we would hope to continue to see come through.

So we feel good about momentum brands, Jeff, to headline your question, we have today, and I'm hopeful that we will see other brands come through too. And I'll add that we expect to launch brands in the upcoming year across all of our major departments, which I think is also an exciting piece of what we're going to be doing. But again I just want to remind you how important this has been for us over the years. This has always been one of the things we've focused on.

For me, this represents what our customer demands from us. Our Zumiez customer is a customer who has always been about expressing themselves more strongly in terms of their identity. Who they are and how they want to convey that to their peer group in a more significant way than most of the people in their peer group actually do.

So this is something that over a period of the last few decades, we have really built a special place for these consumers to come who want to be more self-expressive than their broader peer group. With that, Jeff, we become the place that attracts brands that want to launch and we're really good at doing it. Really good both in terms of what our product team does, we're good at making sure we don't over distribute the brand. We keep it focused at where it will be most successful.

And we're really good at maintaining price integrity for these young brands and their partners. Just all so super important for us. And then of course, our marketing teams can help leverage and grow these young brands too. So, this has been true for us for a long time. I think one of the other interesting things about our current position is we also have a generational shift taking place. And having been around here a long time, I can tell you that generational shifts historically have been good for our business.

Because, again, a new generation wants to be to be different than the generation that preceded it. Going back to the Gen-X days, that was a positive momentum for us during that shift. Likewise with the millennial generation through the, really in their early phases really early and mid-2,000s. And I'm hopeful we're going to see this new demand for newness from this new Generation-Z group coming through the system.

So, those give you a sense, Jeff, I think of maybe where we're at, and in terms of how we're thinking about it now. And, I guess, the only other thought I'd add to that is how important our global platform is for these young brands. Something we have to offer today that we didn't have to offer before and that we continue to partner with them to give them growth opportunities they look forward to growing with us.

So I feel good. In summary, I think I feel good about our efforts around driving uniqueness through young brands, where we're at currently, and I feel good about the pipeline for what we have achieved the last few years and I'm optimistic about the pipeline as we head into 2017. Let me stop there and ask Chris to add some comments about brand mix.

The only thing I would add, just for everyone, just a reminder our largest brand is typically around that 6% to 9% of total sales and we continue to kind of operate in that level with the largest brand. Beyond the lower side of that. We have talked about some of these emerging brands that you alluded to in your question throughout the year, because we have really seen them be a driver. Specifically our men's and now our women's apparel brands.

When we look at the top 10 and 20 brands as we do, we always stop to kind of reflect at this time of year. We continue to see that 20% to 30% turnover that you would expect in the top 10, in the top 20 brands as we do bring newness into the operations. And those brands are the drivers, are still well below that 6% to 9% of total sales. So we think there's hopefully good opportunity for growth there.

And when I look at the top 20 brands, we're continuing to see them grow as an overall percent of the mix, which I think ties to where we are in a cycle.

Okay. That's helpful. I appreciate that. And best of luck for the rest of the quarter.

Thank you, Jeff.

Our next question comes from Betty Chen, from Mizuho Securities.

Thank you. Good afternoon. Congratulations on the nice execution in the fourth quarter. I was wondering, Chris, if you can talk a little bit about maybe the separate comp impact from the delayed tax refunds, whether you're able to quantify that? And as a result, have you been able to see any change? We heard from some retailers that late February you saw a slight pickup as some of those refunds started to hit. And then related to the calendar shift again, remind us, if you could, what's been the usual comp shift from March to April, given the later Easter?

My second question, then, is really regarding the customer engagement fee. Rick, you guys have continued to emphasize that service. Wondering, what are some thoughts after the early learning? And kind of, you know, what we should continue to anticipate in 2017 and beyond? Thanks.

Great. So I'll start, Betty, with your question on February. Let me just kind of back track a little bit into January as well, because as you know, we had a very strong January. And as we move through January our actual toughest week of January was the last week of January. And we continued to see that into February, specifically in the first few weeks, and definitely tied to our US business, which again ties in with kind of the tax refund timing.

And then we had an extremely strong fourth week and that kind of gave us the comfort. As you know, our February reported amount was down 3.1% comp, to take our guidance in that flat to 2 range. So based on the results in the fourth week of February and even into the first week of March, we felt comfortable saying that we would be able to get back some of what was lost based on the tax refund delay in the early part of February.

As it relates to the calendar shift with Easter, I'm going to kind of stick to our historical practice of not quantifying the amount, and we'll work, as we do our reporting here, to report March and April together as we kind of wrap the quarter. But I will say the two weeks leading up to Easter that are a benefit, and the day of Easter which is typically a negative result both in March this period. As you know, those have both moved down to April. So we're seeing a full movement of Easter out of March, into April. So it's going to be a little bit -- There's a few factors here.

That's why we alluded to this on our January call and brought it up today as well. But we'll keep working towards the month-to-date number and update you -- I'm sorry, the quarter to date number and we'll update you as we get to the end of the quarter.

Okay, great. Thanks, Chris.

And then on your second part of your question, or the second question, Betty, I'm happy to give you some color around the customer engagement suite and what our thinking is. And we do obviously have some learnings from our work in 2016. Let me just say we're very excited about where we're at.

This is really a new kind of approach to retail technology and we are the launch customer for this new software package. So the roll-out plan, just to give you a sense of that is we expect to have this completely rolled out in the US by the end of 2017. And then we'll look at how, after we get the program really rolling here in the US, we'll be evaluating what will go next in terms of what other parts of our international operation. Our goal will be that over a period of time, all of our operations will be on this new platform.

So in terms of some of the key learnings and objectives that we have for the platform, Betty, for the new customer engagement suite and internally we call this the "commerce engine" and I'll talk more about that in a moment, but this is all about a better experience for our customers.

New kind of technology, new technology platform, one that gives us a much greater flexibility to grow with the customer over time, particularly around mobile devices. And of course, this has kind of come out with a completely tightly integrated, already tightly integrated interface into our Zumiez Stash program.

So we are finding, I'll tell you some of our key learnings, is that we can, as we hoped we could, achieve -- We can accumulate large amounts of data relative to capturing what happens within stores into our -- And capturing that data back and being able to put it back into our Stash program where we're also, remember, our Stash program is working. In the modern mobile world already, we're engaging around points for engaging for -- Giving customers points for engaging with us.

That's for showing up in stores, for opening our emails, for following us in social media, for looking at our posts in social media. So we're engaging in all sorts of new ways with the customer, and our intent with this new engine, not only does it increase feature and function capabilities and will give us again the platform to add a lot more feature and functions over time, but it's all about how we can create a feedback loop to improve virtually every aspect of what we're doing.

I think we're going to find ways to use this new data to improve assortments across the country, to further localize our assortment planning. No doubt we're going to be able to provide more customized experiences in a local market basis because we are simply going to know so much more about customers at every location.

Likewise, I expect that as we kind of said in the comments, we expect to personalize a lot more of the customer experience because of the deep level of engagement and knowledge we're going to have about this customer base. And I also want to emphasize that this isn't just about point of sale.

The idea of the commerce engine is that our entire sales platform will plug into the device. So towards the end of 2017, we'll begin plugging some of the first components of our website into this new commerce engine idea, the customer engagement suite, which will be able to allow us to serve customers from any of the web or store channels seamlessly across all touch points in the system.

So to give you a sense of what we're thinking about in terms of where we're at, again, we know we can capture the data. We've proven that here over the first few months of using the system in the test stores it's been in. And we're excited to get it going and get it rolled out because then we can really start again generating information that will feed virtually every aspect of our Company operations in terms of better serving customers in local markets and in local trade areas.

That was very helpful. Thank you so much, Rick.

Our next question comes from Adrienne (inaudible), with Wolfe Research.

Hey, guys, this is Doug Drummond on for Adrienne today. So our checks have been showing during the quarter that you have had a marked pull back on promotions. So I'm kind of surprised to see AUR down for another quarter. Can you help me by talking about mix during the quarter and any changes in IMU that you may have seen? Thanks a lot.

I'll take the question. I would say from a mark down perspective, is as you know, 2015 was a very challenging year for us, and specifically the end of 2015. So, we, like we always are, are trying to be very efficient in moving through inventory that is slow moving.

So you saw us do that in the fourth quarter of 2015 and into the first quarter of 2016, which, as I said in our prepared remarks was the only quarter in which we didn't grow product margin during 2016. So from a mark down perspective, our sales have been better. I think our buying teams have done a great job buying into the product, and we have not had to mark down as much as we did a year ago.

From an AUR perspective and a metrics of business perspective, this is really challenging to outline in a quick answer because we have lots of different things happening in the business. And I think we not only have the historical mix shifts we have had between categories within the business, but we also have mixed shifts between countries. And the dynamics of the impacts of a Europe around during months of the year is different as we move around the year.

So I don't think there's a whole lot to read into it there, from an AUR perspective. I think the short story is we feel good about where our inventory is at. And we are, although modestly, we are planning margins to be up as we move into 2017 and hoping to drive the top line. It's the most important thing for us.

Okay, that's helpful. And can you just give a quick update on Europe and Australia, any new trends that you may be seeing there? Thanks a lot.

Yes, happy to comment. I think as we look at Q4 and how Q4 rounded out, I think one of the regionally perspectives you get is almost everything is within a reasonable standard deviation of the consolidated comp. Meaning everything was performing basically in line. So we did see positive results across the business in Q4, and I think from a Europe perspective, this continues to be an area that we're feeling optimistic about.

As Rick mentioned in his prepared remarks, we only represent ourselves in a small portion of Europe today and we think there's a lot of growth there. Our focus is very much on doing the growth the right way, and growing with profitability.

As we look to the future this is still a business we have invested a lot in, and a business that will continue to invest in over the coming years to grow, but we want to do it in a smart way. So we are still forecasting 2017 to be roughly break even. And yet we're feeling good about the trends there. 2016 was a tougher year from a yearly perspective in Europe, primarily around the hard goods trend and specifically skate.

We had a great year in 2015 there and had to anniversary that. If I look at the skate category, on a two year comp it is positive but 2016 was just more challenging. All our categories in Europe through 2016 are running positive and I think we're continuing to make momentum there.

So we're looking forward to see how the team can execute in 2017 and beyond.

Appreciate the color. Best of luck, guys.

Thanks.

Our next question comes from the line of Pam Quintiliano, with SunTrust.

Great. Thanks for taking my question, guys. I had a quick one on the fiscal guidance, just so I understand it correctly. So modest product margin expansion, SG&A higher. So just how should we think about gross margin and comps to achieve improved EPS this year?

You know, I think, as we also said in the fiscal guidance, we expect comps to be positive and we have of said historically that on a 3 to 5 comp, we believe we can leverage the business. I would tell you, as we continue to mature and optimize the business, we are hoping to do it on the lower side of that guidance. So while we're not giving full year sales guidance, we do believe we'll be able to achieve positive sales results, is what we've said. And as we think about earnings results and growing earnings, I think it still has to be on the lower side of that metric, to be able to grow earnings. So right now we feel like we have the opportunity to grow earnings and we'll continue to update as we move through the year.

Okay. Thank you for all that. And just one other one, and I'm sorry if I missed this, regarding online penetration, did you give how much that grew this year?

We did not. And we have not done that for some time, and I think it's important to talk about why. Because when we look at online, our online and our stores are completely integrated at this point.

In fact, as Rick mentioned in his remarks, if you're shopping online, we're going to try to actually send you to a store. We've got lots of different mechanisms that try to help you interact, whether you're in one channel or the other. And quite frankly, over the last 5, 6 years, as we have been building on our Omni-channel suite, one of the things that's become very apparent to us is while I can report where the transaction actually occurred, I cannot report where the transaction originated.

Meaning, I think often the customer starts online and goes to the mall, or be in the mall and may have such great experience, but will go home and pull the trigger after they think about it, maybe do a little bit more research. And I think it's become very muddled in our world. And as we talked more and more about trade area and how we're thinking about the business, what I know today better than I have ever known is that where I have stores, I don't have a web. And when I open stores, I get a web.

And it's a very integrated experience. And so, you know, for us it's not something we've reported. What I can tell you is, as we think about growth, for what it's worth, the eCommerce is growing at a faster rate than stores but I think what's important to note when you talk about the fourth quarter, on a 5-1 comp, given where our eCommerce is, we're seeing positive results across both channels and we know that they're working together to serve the customer.

So faster growth on web but also positive results on stores in relation to the fourth quarter.

I'll just add a little bit more there, Pam. Again, clearly our customer doesn't even see channels anymore. They just want an integrated seamless experience. Our job is to give them all the power we can to make the choices that are right for that moment in time, in that customer's life.

And it's very interesting when we dig into this trade area idea and Chris and all of us here are thinking a lot about this. Our ability to localize fulfillment is about trade area because that means we have to be able to look at digital and physical demand, and place product in a trade area in service of customers, and again these are all big strides we've made over the last few years.

And if you get into looking at trade areas, it's very, very interesting. There's actually quite a bit of wide variability as to what you would think eCommerce penetration is, when you get down to that level of detail. And some of it is quite surprising. And again for me it's just how -- We're going to have this new focus around how we think about an integrated selling experience that puts our customer in charge of that experience, and our job will be both to continue to localize, to create even a better brand experience for our customer, by optimizing, as Chris said, the cost side of the experience.

I think localized fulfillment is an example, as you heard in our comments during the call, where I think we achieved both objectives. We created a better brand experience for our customers in many ways, including being much, much faster in delivery. But we also optimized and got some efficiencies about how we were able to take advantage of labor utilization rates in a trade area.

So again, that's, I guess, for me the perspective of how it all works together in the modern world and how we're putting our customer in charge and letting them make the decision, by always being fast and always having exactly what they want close by, in their local marketplace.

Can I just squeeze in one more, and I think I know the answer to this, but can you remind me if you have traffic counters? I know we're talking about all encompassing, but in the brick and mortar stores, obviously we've heard a lot of negative commentary regarding mall traffic. Do you think you're getting more than your fair share because your customer is so loyal and what you have is unique in that marketplace?

We don't have counters, Pam, so we really can't respond to it in that sense. I will tell you though again as we continue to engage with our customers through Stash, we're going to have all sorts of new capabilities in another year tied to the customer (inaudible) the customer engagement suite. And for our best customers, the customers who visit the most often, who buy the majority of our volume from us, we're going to have a much more detailed idea. It won't be counters per se but I think it will be richer and more important data relative to the numbers of number of times they're in the store and the number of times they buy and interact with us across all touch points. Whether that be social media, whether that be our email campaigns, whether that be coming to events or whether it be showing up in our stores. A year from now, maybe 12 to 18 months from now, we're going to have a lot richer data about this. Still no counters but I think what will really be important is about our most core and loyal consumer, and having a deep, deep understanding of what they're doing in each local market.

And Pam, I'd just add to that, while we don't have counters, we do follow transactions. We report transactions. Here we are in a cycle that has been favorable to us. I think we've got good product and our sales teams have continued to execute at a high level. We've seen transaction gains in the third quarter and the fourth quarter and even into February where the results were tougher. So I think we are getting some traffic, although we just can't quantify it without having counters.

Fair enough. Thank you so much for taking the time. Best of luck.

Thank you.

Thanks.

(Operator Instructions). Our next question comes from the line of Jonathan Komp, with Robert W. Baird.

Hi. Thank you. I just wanted to ask on the comps that you're projecting for the quarter it looks like March and April, kind of low to mid-single digits. Maybe 2% to 4% embedded in the outlook. I just wanted to ask, is that the type of level you think on an underlying basis the business is running? Or if you parse out through some of the noise how you're thinking about the run rate?

We're going to just comment on Q1. Obviously, it's kind of been our standard. We started a little bit slow in February, and the comps that are out there, I think, are where we think we can get to the first quarter. Our goal beyond that, as we said, is we want to run comps in that 3 to 5 range. We want to be able to leverage the business and to go beyond. And I think you can look back at Q4 and see when we do achieve that type of level, we're able to drop down to earnings pretty meaningfully. And so we're going to stay away from commenting beyond Q1, other than you can bet we're going to try as hard as we can to be exceeding those levels.

And maybe just big picture, directionally, and maybe this ties into the earlier question on some of the brand drivers you see in the pipeline, but just given as a comparison, what's so different first half versus second half, in terms of the same-store sales you saw last year? Any additional color on how you think you can lap some of the higher comps in the back half of the year?

I think it really ties into how Rick started the call, around brands. We've got to continue to bring great product to market. And as we've said now for multiple months and quarters, we've got some brands that are working and we're not only very focused on them, we're focused on the next brands that are working.

And in the hundred brands we're going to launch in 2017 which probably won't be meaningful until 2020 or 2021. So we continue to work on this pipeline because we believe that that is our place in the market, to bring newness out to the market. So I think as we continue to push, we've got to continue to do that and continue to focus on our teams.

And I think one of the things I'm most proud of with the last 5, 10-plus years and well beyond that with the business is how we continue to invest in the teams in training, and helping them grow as salespeople, which I think has really helped them evolve as we now look at this by trade area and kind of one customer across the market.

And we've got, I believe, some of the best sales teams in the business. And they are great at engaging with the customers and they can sell. And so I think you tie that product focus with the engagement and the experience within the teams and the Omni-channel effort that we've put across from our technology teams and I believe it's a pretty good sales experience.

And so that's really the focus, and continues to be the focus. And as we think about the comps over the year, you're absolutely right, the front half to the back half, looks a lot different from a comparable perspective. And we're mindful of that. But we also know that the strength of the business over time is running comps on comps. So that's our task and we're going to do it through the brands of we're going to do it through our sales teams.

And we're going to do it in the ways that can serve the customers through technology, and the person-to-person interaction.

Okay. Thanks for all the color. And maybe just last one. Any high-level thoughts on how just the broader retail consolidation might impact your business as you progress through the year?

Sure. I'll see if I can give you a sense of our thinking about the broader retail consolidation, Jonathan.

This has obviously been going on for a long time including our lifestyle segment. We're probably in year 6 or 7 of this process, all driven by this kind of new and empowered consumer world where people now have so much capabilities in their hands, in their smart devices they're carrying around all the time.

And for us, we've always viewed this as a positive thing because it's about customers being able to choose their own unique, for our customer, their own unique perspective on who they are and these devices really empower that kind of exploration by our customers, in almost every sense. From the point of view of influencers in fashion and music and art, and other lifestyle genres, so we've always viewed this as an opportunity for us.

And I think we have been good over the last 5 and 6 years of evolving our business dramatically. As I said during the call I'm really proud of where the team has come from. We've seen a lot of shops in our niche disappear over this time frame, in terms of again I think you have to have scale to work effectively today in the modern world, to serve, to meet the customers expectations and to serve those customers the way they want. But all that being said, we have a ways to go yet.

And I think it's in all -- And I would say this is true in all the developed markets around the world, not just here in the US. I think the US maybe has got some of the biggest challenges relative to how over retailed we are. And when I say "over-retailed," too, I don't just mean in the physical sense. I think we have over-retail in low-quality digital retail also. And clearly we've seen some cleaning up there on our side of the business over the last few years.

We continue to see it in other areas in retail, where digital sites are closing down too. So it's not just the physical world, it's over-retailed in the US, I think in the totality in the sense of retail. So we still though, even with all that being said, we still have a ways to go, I think, in terms of share consolidation. And I think we probably have another period of years, Jonathan, to have this play out.

What we're going to do is continue to execute against the Omni-channel strategies, against our localization strategies, against the optimization strategies. Again, as you have heard, the localized fulfillment is a great example how localization and optimization, a better brand experience and a more efficient and effective way to do it all work together. Localization, optimization aren't two separate things. I believe they are one integrated thing.

So we have identified a large number of continued projects that we will be attacking over the next three to five years through this lens of localization optimization, including a number of brand improvement projects from the brand work we've done that we'll be executing against over the next three to five years.

We need to do these things, and because we intend to win the share consolidation game in our lifestyle niche here in the US and in Canada and in Europe and in Australia and in any future locations we may do business in. So I still think we have a few years to go in terms of playing out this consolidation game, and it's going to be, I think, a fun and challenging time but also filled with a lot of opportunity.

And I'm showing no further questions in queue at this time. I would like to turn the call back to Mr. Brooks for any closing remarks.

Thank you, Lynn. I appreciate that. Again, I just want to offer my thanks to our shareholders for their interest in Zumiez. It's obviously a challenging time in retail, but again I think we feel good about particularly the back half of the year. We feel good about the progress we're making. We feel good about the execution against our five year plan and we feel very good about our five year plan looking forward in terms of our ability to win share in the marketplace. So my thanks to everyone, in terms of our shareholders and our analysts that support Zumiez. And likewise, as I said on the call, my thanks to our teams here at Zumiez and the Blue Tomato team and our Fast Times teams for the continued focus and execution. We greatly appreciate it. And we look forward to talking to you at our next quarter end call. Thanks, everybody.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.